SEATTLE (AP) - Microsoft Corp.'s (NasdaqNM:MSFT
- news) new video game
system, expected to be unveiled at a game technology conference on Friday,
will have the power of a high-end gaming system and the flexibility of a
personal computer.

Sources close to the project, dubbed ``Xbox'' by company
insiders, told The Associated Press Monday that the game consoles
themselves would be based on the same components that power personal
computers.

The devices will contain hard drives and memory
components similar to those of PCs, as well as the same microprocessors
that power high-end personal computers. The consoles will also be
Internet-compatible, allowing users to take part in multiplayer games with
people around the country.

The sources, who spoke on condition of anonymity, said
the console and games would be ``competitively priced,'' with the Nintendo
64, Sony PlayStation2 and Sega Dreamcast. The system is not likely to
reach store shelves until 2001.

Microsoft declined to comment, other than to note that
company chairman Bill Gates is to address the Game Developers Conference
in San Jose, Calif., on Friday.

The San Jose Mercury News reported Monday that the game
console would feature a 600 megahertz processor and 128 megabytes of
random-access memory - features normally found on better-than-average home
computers.

A company source said Microsoft discussed the Xbox with
a number of independent game programmers and developers and found interest
to be high. Many developers have already written games to be run on the
Windows operating system, a stripped-down version of which will power the
Xbox.

Thus, few changes will be needed to move existing PC
games to the Xbox. Microsoft officials think that will give them an
advantage by having established games as soon as the system is introduced
to the public. It also will save developers time and money.

The introduction of a new gaming platform can be a risky
business. Sega Enterprises Ltd. of Japan bombed when it introduced the
Sega Saturn back in 1996 and was quickly overtaken by the original Sony
PlayStation a year later. Only last fall, when Sega introduced its new
Dreamcast machine, did the company make a comeback in the gaming market.

The Sega Dreamcast, which uses software developed
jointly with Microsoft, currently retails for $199.99, with games costing
anywhere from $29.99 to $49.99 each.

Sony's new PlayStation2, introduced Saturday in Japan,
is selling for about $370 and has sold nearly 1 million copies so far,
Sony says. Prices for the U.S. version, expected to be introduced in
September, have not been set.

The PlayStation2 is the most advanced platform currently
on the market. It has the ability to play audio CDs and DVDs and link to
the Internet for multiplayer games and basic World Wide Web access.

Nintendo's latest offering, the Nintendo 64, currently
sells for less than $100, though the company is planning to release a
high-tech successor in time for Christmas.